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Fed stands pat, leaving rates alone

By Mark Hamrick · Bankrate.com
Wednesday, March 20, 2013
Posted: 2 pm ET

As the economy shows signs of forging ahead despite budget stalemates in Washington, D.C., the Federal Reserve will leave interest rates at their current record-low levels.

Capping a two-day policy-setting session, the Federal Open Market Committee, or FOMC, is maintaining the target for the benchmark federal funds rate at between zero percent and 0.25 percent. That is good news for prospective borrowers because interest rates should remain low for everything from auto loans to credit cards to mortgages. The story continues to be less positive for savers.

Federal Reserve building

The bad news for savers

Nationally, the average rate on a one-year certificate of deposit is 0.26 percent, according to Bankrate.com's weekly survey. Bernanke and other Fed officials have defended low rates for savers by saying a more robust economy -- the goal envisioned by current monetary policy -- should eventually benefit everyone, including savers.

In the official statement, the FOMC acknowledged signs of modest improvement in the economy, including rising employment and stronger home sales.

"Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices," the statement read. "Longer-term inflation expectations have remained stable."

The Federal Reserve has also pledged to continue its third round of large asset purchases (known as quantitative easing, or QE3) until it sees substantial improvement in the job market. It has also signaled that it will likely hold those assets for a considerable time after the purchases conclude.

Washington rasslin' match

The statement also says that the low interest rates will be "appropriate" as long as the unemployment rate is above 6.5 percent and inflation remains contained. The unemployment rate for February edged down to 7.7 percent.

The Fed continues to add support to the economy even as Congress and the Obama administration wrestle with budget challenges. Some $85 billion in mandatory budget cuts took effect March 1 because leaders were not otherwise able to forge a broader agreement.

Cyprus chill

As a reminder of other risks that could affect global financial markets, banks in Cyprus have been closed for three straight days as the country's parliament considers a response to an international bailout effort. A controversial plan to seize bank deposits to fund a contribution to the bailout has raised the fear of a large run on banks there.

Throwing curveballs

Not all members of the FOMC are on board with the strategy. Esther George, president of the Kansas City, Mo., Fed, has emerged as the sole voting member to state her opposition, fearing increased risks of financial imbalances and inflation expectations.

One added twist to this meeting involves a narrower time between the release of the Fed's statement and Chairman Ben Bernanke's news conference. The gap used to be almost two hours and now it's 30 minutes. The change is seen as an attempt by the Fed to help it to have a louder voice in explaining its policy statement, by giving Bernanke a quicker opportunity to explain the statement.

The next scheduled meeting of the FOMC is April 30 and May 1.

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2 Comments
HykyrJoe
March 20, 2013 at 4:19 pm

Doing stuff like that doesn't result in a stronger economy.. it's just survival.... not thriving.. when rates were 7 and 8% we spent every penny of the interest... just like we do now....that's where Ben has put us.... we barely make 10% of what each account paid at that 8% monthly now.... if Ben thinks I'm going for the house of cards stock market.. it isn't happening.. I 'll stick with the paper I'm stuck with and ride it out too....

James Greene
March 20, 2013 at 3:17 pm

If I'm not making any money on my savings, I don't buy any extras. I've been driving my truck for 9 years, I can drive it for at least 5-6 years more. No added home improvements, they can wait another 10 years if need be. No spending money until I start making money.